The debate has at
times gotten ugly, with IEX and the New York Stock Exchange
in particular trading barbs.

For its part, the SEC has delayed its decision on the
application until mid-June.

At issue is the IEX speed bump, which the venue says levels
the playing field between high-speed traders and the rest of the
field.

But IEX's rivals have questioned whether the speed bump is
consistent with Regulation National Market System, the rule which
governs stock exchanges. It requires that a public
exchange's response to an incoming order be "immediate."

The SEC has hinted that the 350-microsecond delay built in
to the IEX system could be permissible, as it is under one
millisecond. Nasdaq disagrees.

Here is the Gibson Dunn letter:

This supplemental letter explains our view that the
Commission's proposed Interpretation of the term "immediate" as
permitting an intentional delay of less than one millisecond
would conflict with the plain language of Regulation NMS, with
the requirements of reasoned decision-making under the
Administrative Procedure Act ("APA"), and with the Commission's
statutory duty to consider the effect of its actions on
efficiency, competition, and capital formation.

Here are the references to judicial scrutiny:

To be sure, courts often afford deference to an agency's
interpretation of its own regulations, including to
reinterpretations of existing provisions. But that deference is
hardly boundless and would not shield the proposed Interpretation
from judicial scrutiny. Deference to an agency's interpretation
of a regulation is not warranted unless "the language of the
regulation is ambiguous."

And:

In addition, the proposed Interpretation would be unlikely
to survive judicial scrutiny because this de facto rewriting of
Rule 600(b)(3) would impermissibly circumvent the Commission's
statutory obligation to consider whether changes to Regulation
NMS are justified on the basis of cost-benefit
considerations.

And here is the closing paragraph:

For all of these reasons, Nasdaq urges the Commission not
to depart from its existing interpretation of Regulation NMS by
authorizing artificially delayed response times for protected
quotations, and further submits that the Commission lacks the
authority to approve IEX's application and to treat its
intentionally delayed quotations as protected.

IEX responded to the Nasdaq letter in an emailed
statement. John Ramsay, chief market policy officer at IEX,
said:

The incumbent exchanges have lost the debate on the merits and
Nasdaq's latest salvo is more saber rattling in an effort to
stave off competition at all costs.

This isn't the first time that Nasdaq has spoken out about
IEX.

The IEX
team.IEX

Business Insider sat down with Nasdaq CEO Bob Greifeld in
April and asked him then about it. He said that IEX was trying to
"violate the core principle of Reg NMS."

He said:

"So, in the latest SEC guidance they're requesting comment on,
we're actually more happy because it says, OK we're going to
make a millisecond de minimis, but make that a policy statement.
So this is not the IEX application, but we're saying if you're a
millisecond or less, because now they call it millisecond de
minimis, then you're still Reg NMS compliant. So OK, at least now
we're in a field where it's not just about trying to give
advantage to one exchange. And if they do that, we're fine, but
it's going to be horrible.

"And as I said, it introduces another dimension to orders —
that's time.

"So right now, if you want to buy Apple, you say I want to buy
1,000 shares of Apple, $190 or whatever it's trading at, and I
say I want to buy 1,000 shares of Apple at this price, and I want
you to wait a millisecond — I'll have that order. Then I'll have
another order — not milli, micro, two microseconds ... I can go
every microsecond up to a millisecond. So, probably what will
start is IEX is a 300 millisecond, somebody thinks it's going to
be better to go 301, somebody thinks it's better to go 299, then
it'll go 298, 302, and you know, it's going to be pretty
interesting. So we'll see."

That said, the letter marks an escalation in the entire IEX
exchange-application saga.